LONDON - While stocks around the world have risen from earlier lows, pension schemes in Europe still are searching for ways to solve underfunded liabilities that are putting them in breach of minimum funding requirements.
The latest attempt to move out of the pension shortfall woes was made by Intelek PLC, Birmingham, England, a satellite modem manufacturer that recently transferred a call on L2.4 million of its corporate assets to its pension scheme. The call gives the pension scheme the option to seize the agreed assets in the event the overall company goes into bankruptcy.
"It was the only solution we had, given the effect markets have had on our assets. We as a company cannot just pull up stumps and give massive cash contributions in order to keep the pension scheme going; it would not be in the interests of the business nor the long-term interests of the members of the pension scheme," said Kevin Edwards, Intelek finance director.
The transaction, detailed in the firm's latest interim report released in November, gives the pension scheme's trustees a call over the assets of an Intelek subsidiary, Paradise Datacom LLC, Boalsburg, Pa.
Although similar transactions are not unknown in the United States, most notably contributions in company stock, such transactions are new to Europe.
Similar action is happening on the Continent as well, where companies are under pressure from falling markets and increased pensions liabilities.
In the Netherlands, where regulator Pensioen & Verzekeringskamer, Apeldoorn, recently has toughened minimum funding requirements, companies are being forced to issue loan notes to their pension schemes secured by company assets, said Loek van Daalen, spokesman for the agency, known as PVK. He said regulations prevented him from naming pension schemes involved.
About one-third of Dutch pension schemes were underfunded as of September, according to the PVK. These plans are required to submit detailed plans to the authority by December, outlining how they intend to return to the required 105% funding within 12 months.
Mr. Van Daalen said details of the plans would be published in January, and it was expected a substantial number of the plans would include some form of loans or transfer of corporate assets to the pension scheme as a means of alleviating the solvency issue.
But not all such measures have gone well.
Siemens pays out
Electronics manufacturer Siemens AG, Munich, last month forked out e1.6 billion in additional contributions to its e10 billion pension scheme for German workers after the value of shares in part-owned semiconductor subsidiary Infineon Technologies AG - transferred in April 2001 to cover a shortfall in its pension scheme - fell 90%.
Peter Scherkamp, head of financial strategy at Siemens, declined to comment directly for this article.
"Transactions like these are basically stock transfers, and they are becoming more and more common at the moment," said Desmond Mac Intyre, head of pensions strategies at Deutsche Asset Management, London.
"The problem with any individual stock contribution is that the pension schemes inherently have enough risk already attached to the sponsoring company, and adding another line of that company is not optimal," he said.